First things first: this is NOT tax advice. I am simply telling you what I do to protect myself. Use this info at your own risk and don’t say I didn’t warn you to get the advice of a tax expert before committing to a financial strategy like this. I take no responsibility for…anything every anwhere. Nyah nyah.
One of the best things in the world any freelancer can do for themselves is to–this Monday–gather up all the year’s receipts and tally them up. Compare your deductions to how much you think you’re going to owe on your 2008 tax form. If you don’t know how to do that, consider how much money you made this year, calculate approximately 22% to 28% of that sum as your taxable income. If you made 30K this year, chances are you’ll be closer to 22%. If you made more than 50K chances are you’re edging closer to 28%. (These are guesstimate figures, folks. Do your homework.)
Once you have a number, take a good look at your office equipment, your desk, your phone, and anything else that might need to be repaired, replaced, upgraded or purchased as a legitimate enhancement to your business. Do you have a resume website? Are you conducting business on your home phone instead of a dedicated line? Does your computer have a date stamped on it older than 2005?
If you are in dire need of some additional deductions, consider making some FY2008 last-minute purchases that legitimately apply to your freelancing business. You have two choices–you can pay the money you’d spend (and legally deduct) to the government, or you can take any deduction you’re entitled to by law and improve the state of your freelancing business in preparation for 2009.
That’s what I did with my new iPhone. I needed to take some deductions–legit ones–and I have a bona fide need to be connected to my e-mail, Skype, and Internet regardless of where I am on the train, in the car, the grocery store, etc. My business depends on having instant contact with clients and my team of freelance writers…so the iPhone is a productivity enhancer for me and an honest tax break.
Freelancers–DO NOT GAME THE SYSTEM. But DO take all the tax breaks the law ALLOWS. You need them all…and you’ve earned them. If you have too much money in the “taxes owed” column for 08, see if you can shave that number down a little by upgrading your business.